1. Fixed Deposit generates Interest for the depositor, which is taxed every year for the entire term, both for accrued and received interest for full FD, at his applicable tax slab rates of 0%, 5%, 20% or 30%.
2. Sec 80TTA / 80TTB gives an aggregate annual tax relief on this interest to depositors below / above 60 years age upto Rs.10,000 / 50,000 respectively.
3. For a tax-paying depositor below 60 years age, a back-of-the-envelope calculation shows that his FD corpus, earning say 8% / 7% interest p.a., will get taxed annually beyond Rs.1.02 / 1.03 lakh (including other qualifying products), while for a tax-paying senior citizen, this amount is Rs.5.09 / 5.14 lakh.
4. Debt Fund generates STCG only for units that are redeemed within 3 years of acquisition, which is taxed only once for the applicable year, at his tax slab rates of 0%, 5%, 20% or 30%, instead of the full fund corpus being taxed every year.
5. While there's no tax relief, STCG from debt fund can be set off against STCL from stocks and other mutual funds before tax computation.
6. Actually, in Debt funds there's no "accumulated STCG being taxed once"; instead STCG on redeemed units are taxed at your slab rate for that year.
7. Debt funds benefit most through LTCG on units redeemed after 3 years, because Cost Inflation Indexation (CII) benefits are availed on acquisition price of redeemed units which lower LTCG tax significantly even when they are at higher NAVs.
8. If last 5 years are considered for an illustration, CII provides a benefit of 27.2% on purchase price (2013=220, 2018=280).
9. There's also a growth potential in NAV of Debt fund, besides keeping its corpus tax-free too, which increase its long-term post-tax earnings too.
10. It is also suitable for investors of all ages, types and corpus amounts.
11. FDs suit those persons who:-
a) Are in 0% income tax slab rates,
b) Earn aggregate interest within Sec 80TTA/B limit as explained,
c) Need regular short-term income,
d) Don't need to setoff capital gains and losses in tax returns, as you've already mentioned,
e) Don't mind paying annual TDS and claiming tax refund every year,
f) Don't need to avail SIP, SWP and STP facility from their Debt corpus for various purposes, and
g) Are not seeking growth potential for their Debt investments.
12. FDs will continue to suit as long as interest (accrued and received) is within Sec 80TTA/B tax relief every year, or even when total income is non-taxable, e.g. of young earners and persons above 60, as TDS can then be reclaimed by filing tax returns.
13. When our wealth starts growing beyond the above criterion, it's better to limit FDs upto tax exemption, and allocate balance Debt corpus to Debt funds, even at slab rate tax on STCG upon redemption.
14. This is because of various other benefits obtained from Debt funds in such a scenario, which I've already explained above.
2. Sec 80TTA / 80TTB gives an aggregate annual tax relief on this interest to depositors below / above 60 years age upto Rs.10,000 / 50,000 respectively.
3. For a tax-paying depositor below 60 years age, a back-of-the-envelope calculation shows that his FD corpus, earning say 8% / 7% interest p.a., will get taxed annually beyond Rs.1.02 / 1.03 lakh (including other qualifying products), while for a tax-paying senior citizen, this amount is Rs.5.09 / 5.14 lakh.
4. Debt Fund generates STCG only for units that are redeemed within 3 years of acquisition, which is taxed only once for the applicable year, at his tax slab rates of 0%, 5%, 20% or 30%, instead of the full fund corpus being taxed every year.
5. While there's no tax relief, STCG from debt fund can be set off against STCL from stocks and other mutual funds before tax computation.
6. Actually, in Debt funds there's no "accumulated STCG being taxed once"; instead STCG on redeemed units are taxed at your slab rate for that year.
7. Debt funds benefit most through LTCG on units redeemed after 3 years, because Cost Inflation Indexation (CII) benefits are availed on acquisition price of redeemed units which lower LTCG tax significantly even when they are at higher NAVs.
8. If last 5 years are considered for an illustration, CII provides a benefit of 27.2% on purchase price (2013=220, 2018=280).
9. There's also a growth potential in NAV of Debt fund, besides keeping its corpus tax-free too, which increase its long-term post-tax earnings too.
10. It is also suitable for investors of all ages, types and corpus amounts.
11. FDs suit those persons who:-
a) Are in 0% income tax slab rates,
b) Earn aggregate interest within Sec 80TTA/B limit as explained,
c) Need regular short-term income,
d) Don't need to setoff capital gains and losses in tax returns, as you've already mentioned,
e) Don't mind paying annual TDS and claiming tax refund every year,
f) Don't need to avail SIP, SWP and STP facility from their Debt corpus for various purposes, and
g) Are not seeking growth potential for their Debt investments.
12. FDs will continue to suit as long as interest (accrued and received) is within Sec 80TTA/B tax relief every year, or even when total income is non-taxable, e.g. of young earners and persons above 60, as TDS can then be reclaimed by filing tax returns.
13. When our wealth starts growing beyond the above criterion, it's better to limit FDs upto tax exemption, and allocate balance Debt corpus to Debt funds, even at slab rate tax on STCG upon redemption.
14. This is because of various other benefits obtained from Debt funds in such a scenario, which I've already explained above.